Oil traders’ focus shifts from surfeit to impending shortage

Oil futures traders have shifted attention to falling production from their earlier preoccupation with rising inventories. That switch may have helped put a floor under oil prices, as the outlook for non-OPEC supply deteriorates.Bloomberg | March 14, 2016, 08:13 IST

NEW YORK: Oil futures traders have shifted attention to falling production from their earlier preoccupation with rising inventories. That switch may have helped put a floor under oil prices, as the outlook for non-OPEC supply deteriorates.

Throughout December, the weekly publication of US crude inventory data by the US Department of Energy produced a predictable price response. When the stockpile rose, the oil price fell. When the inventory dropped, it jumped. As inventory levels flirted with new records, all eyes were on stockpile numbers, but that relationship broke down spectacularly as 2016 began. The volume of crude stored in tanks and salt caverns in the US soared to new heights and is continuing to rise, but the weekly changes are no longer making prices fall. On the contrary, they-’ve risen when the data was published in each of the past four weeks. So ballooning US oil inventories have had their day as the driver of price and a new concern has emerged. The focus of traders seems to have switched from an immediate surfeit of the black stuff to a possible future shortage. The Department of Energy is becoming more pessimistic about non-OPEC output as a second year of lower investment batters oil-company production plans and low prices encourage the closure of ageing fields and uneconomic wells.

“To save the environment and to fight climate change, my government has planned a major campaign. By 2022, we want to generate 175 GW of renewable energy. In the last three years, we have already achieved 60 GW or around one-third of this target,” he said.